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books. 

University  of  Illinois  Library 


JRN  26  I55S 


APR  2  0    993 

m  2  2  W 


M32 


THE  FUTURE 

OF  THE 

RAILROADS 


Copyright.  1914 

by 

Roger  W.  Babson 


The  Future 

of  the 

Railroads 


Historic  and  Economic  Facts  for 

Railroad  Men,  Shippers, 

and  Investors 


BY 


ROGER  W.  BABSON 

President  of  the  Babson  Statistical  Organization 
Wellesiey  Hills  Station,  Boston,  U.S.A. 


Based  on  various  reports  and  letters  issued  by  the  author 


AMERICAN  EDITION 
BOSTON 

BABSON  S  STATISTICAL  ORGANIZATION 

(Incorporated) 
1914 


Dedicated  to 

Fred  I.  Brown 

A  Business  Man 

With  a  Vision 


2^%^ 

t 

^\\'^ 


Contents 


>n 


THE  FIRST  SECTION 

Page 

Preface  7 

Government  Ownership       .        .  11 

Property  Valuation 

Ownership  of  Freight  Cars 

How   the   Nation  Could   Save 
Millions 

Steel  Cars 

Cost  of  Equipment 
O 
f  THE  SECOND  SECTION 

Railroads  and  Employees     .        .  49 

-  A  Fallacy 

^^  Social  Questions  Involved 

^  A  Solution 

•^^  Ownership  of  American  Railways 

^  Employees  and  their  Compensation 

ta  THE  THIRD  SECTION 

j^ervice  versus  Rates      .        .        .91 

^^  Wise  versus  Questionable   Legis- 

5P^  lation 

^  The  Real  Question 

J^  Things  to  Consider 

o 

s 

i 

^  309322 


Preface 

UNEASY  lies  the  head  that  wears  a 
crown "  certainly  now  applies  to 
the  heads  of  railroad  corporations.  They 
are  apparently  worse  off  than  the  man 
between  the  "upper  and  nether  mill- 
stones"; in  fact,  our  railroads  are  between 
three  millstones,  viz.,  the  shippers  repre- 
sented by  the  government,  the  investors 
represented  by  the  directors,  and  a  vast 
army  of  employees  who  are  better 
organized  than  either  of  the  other  two 
combinations. 

To  show  the  probable  outcome  of  the 
struggle  among  these  three  forces,  is  the 
purpose  of  this  little  book.  Many  insist 
that  the  different  objects  of  the  three  inter- 
ests are  so  conflicting  that  any  reconcilia- 
tion is  impossible.  Rather,  these  interests 
are  so  bound  together  that  one  cannot  long 
prosper  except  as  the  others  prosper  like- 
wise. To  prove  certain  statements  the 
writer  has  used  tables,  together  with 
comments  thereon,  prepared  by  Mr.  Slason 
Thompson,  to  whom  credit  is  hereby 
given. 

R.  W.  B. 

WeUesley  Hills,  August  1,  1914 


The 
First 
Section 


Government 
Ownership 

eovernment  o^vnership  is 
something  always  to  be 
desired  but  always  to  be  post- 
poned. Government  owner- 
ship should  be  classified  with 
war;  namely,  something  to  be 
continually  preparing  for,  and 
something  at  the  same  time  to 
be  steadfastly  avoided.  His- 
tory shows  that  government 
OAvnership  is  one  of  the  many 
things  which,  when  we  have 
it  not,  we  want;  and  which 
when  we  have  it,  we  do  not 

n 


want.  Most  men  look  upon 
the  government  ownership  of 
railroads  as  some  men  look 
upon  family  life,  when  they 
long  for  the  comforts  of  a 
home  without  the  responsibili- 
ties. Unfortunately,  however, 
comforts  and  responsibilities 
go  hand  in  hand  in  this  world. 
Homes,  railroads,  and  most 
other  factors  of  civilization 
are  subject  to  the  same  fun- 
damental laws.  "The  fiddler 
must  be  paid"  is  an  old  saying; 
but  it  contains  an  economic 
truth  which  must  constantly 
be  recognized,  or  else  there 
will  follow  a  crash,  either  po- 
litical or  financial. 

It  seems  as  if  the  public  own- 
ership of  railroads  were  as  nat- 

12 


ural  as  the  public  ownership 
of  highways  and  bridges;  while 
there  appears  no  logical  reason 
why  the  government  should 
not  operate  the  railroads  as 
well  as  the  postal  service.  On 
the  other  hand,  there  is  no 
doubt  that  private  operation  is 
more  efficient  and  satisfactory 
than  government  operation, 
provided  it  is  properly  super- 
vised. In  fact,  exponents  of 
the  latter  theory  even  go  so 
far  as  to  state  that  the  time  will 
come  in  the  succeeding  centu- 
ries when  the  operation  of  the 
postal  service,  the  maintenance 
of  highways  and  certain  other 
things  now  carried  on  by  gov- 
ernments, states  and  munici- 
palities may  again  be  turned 

13 


over  to  private  corporations 
for  operation.  Moreover,  these 
people  submit  much  evidence 
to  substantiate  their  theory. 

The  Law  of  Action  and  Re- 
action applies  to  political  and 
social  movements  as  well  as  to 
industrial  and  financial.  The 
wheel  keeps  going  around;  civ- 
ilization gradually  approaches 
the  socialistic  state  for  tv^o  or 
three  generations,  and  then  the 
tide  turns  and  the  individual 
again  is  fostered  for  two  or 
three  generations.  A  study  of 
the  history  of  only  the  past 
century  suggests  strongly  a 
gradual  approach  to  the  social- 
istic state;  but  a  study  of  the 
history  of  the  last  forty  centu- 
ries clearly  shows  that  people 

14 


have  gradually  alternated  from 
one  tendency  to  the  other,  and 
that  progress  has  by  no  means 
been  always  in  the  same  direc- 
tion or  by  the  same  means. 

As  one  reads  a  list  of  all  the 
different  societies  organized 
today  for  social,  political,  and 
economic  purposes,  it  seems 
as  if  the  millenium  might  be 
reached  during  the  present 
century,  so  that  our  great- 
grandchildren would  have  no 
problems  to  solve.  On  the 
other  hand,  when  one  realizes 
that  man  has  probably  existed 
for  a  hundred  thousand  years, 
and  may  exist  for  a  hundred 
thousand  more,  it  seems  rea- 
sonable to  suppose  that  there 
will   always  be    problems  to 

15 


solve.  Certainly  it  is  conceited 
to  attempt  to  solve  all  these 
difficulties  in  the  present  cen- 
tury. If  one  will  consider  cor- 
porations over  a  number  of 
centuries,  he  will  realize  that 
the  demand  for  government 
ownership  will  spread  and 
subside  many  times,  and  that 
neither  public  nor  private  own- 
ership will  ever  be  found  to 
be  satisfactory.  Hence,  the 
practical  question  is  whether  it 
is  v^ise  noAV  to  attempt  the 
ideal,  or  simply  the  best  under 
the  circumstances.  Moreover, 
may  not  the  ideal  thing  for  one 
generation  or  one  nation  be 
unsatisfactory  for  another.^ 

If  the  railroads  of  a  nation 
were    properly    operated,    it 

16 


would  make  no  difference 
whether  they  were  operated 
by  the  government  or  by  cor- 
porations. Therefore,  is  it  not 
best  to  assume  that  they  will 
not  be  operated  properly  in 
either  case,  and  then  to  ascer- 
tain w^hether  public  or  private 
interests  will  operate  them 
more  efficiently?  It  is  natural 
for  people  to  be  divided  upon 
this  problem  in  accordance 
with  ho^v  their  interests  lie, 
but  should  such  a  question  be 
decided  by  popular  vote? 

The  Determining  Factor 

So  much  for  the  philosophy 
underlying  the  question;  but 
unfortunately  the  ultimate 
outcome  of  the  railroads  will 

17 


not  be  decided  either  by  phi- 
losophy or  economics.  More- 
over, Avhether  or  not  the 
government  purchases  the 
railroads  will  not  be  decided 
by  the  government,  but  by 
the  railroads  themselves. 

A  study  of  the  transportation 
situation  of  any  of  the  Euro- 
pean nations  now  owning  their 
railroad  systems,  shows  con- 
clusively that  such  railroads  as 
were  profitable  to  build,  were 
never  built  by  the  government, 
and  so  long  as  railroads  were 
profitable  for  private  interests 
to  operate  they  were  not  pur- 
chased by  the  government. 
When  a  European  government 
originally  constructed  a  rail- 
road, it  was  because  private 

18 


capital  would  not  take  the  risk. 
In  most  cases,  these  European 
governments  were  forced  to 
build  the  railroads.  The  great 
railroad  systems  of  Europe, 
Asia,  and  Africa  have  been  con- 
structed for  political,  strategic, 
and  social  purposes.  They 
were  not  built  as  money- 
making  propositions.  The 
German  government  does  not 
construct  its  great  east  and 
west  lines  to  carry  merchan- 
dise and  passengers,  but  rather 
for  the  purpose  of  rushing 
troops  to  the  Russian  and  the 
French  frontiers.  When  Rus- 
sia constructs  railroads  across 
Siberia,  or  France  finances 
railroads  in  Africa,  it  is  for  po- 
litical rather  than  financial 
reasons. 

19 


If  a  study  is  made  of  the  cases 
where  railroads  previously 
built  by  private  enterprise  have 
been  purchased  by  foreign  gov- 
ernments, it  will  be  found  that 
the  purchase  was  made  either 
for  the  above  reasons  or  else  to 
help  out  stockholders  who 
were  loaded  with  an  unprofit- 
able proposition!  The  idea  of 
attempting  government  own- 
ership to  secure  more  efficient 
management  has  never  entered 
the  minds  of  these  European 
nations  when  building  or  pur- 
chasing railroads.  The  purpose 
has  been  either  to  relieve 
stockholders  of  unprofitable 
investments  or  else  to  form  a 
part  of  some  military  or  politi- 
cal policy.    Hence,  it  will  be 

20 


seen  that  if  the  United  States 
government  should  take  over 
the  ownership  of  its  railroads, 
it  would  not  be  following  in 
the  footsteps  of  European  na- 
tions, as  our  problem  is  entirely 
different  from  that  abroad. 
The  only  excuse  which  the 
United  States  government 
could  have  for  OAvning  or  oper- 
ating its  present  railroads,  is 
that  it  thought  it  could  do  so 
more  efficiently  than  private 
parties.  Therefore,  if  the  ques- 
tion is  ever  put  to  a  vote,  the 
referendum  should  not  read: 
"Shall  the  government  pur- 
chase the  railroads.^"  Rather 
the  question  should  read: 
"Will  the  government  more 
efficiently   operate    the    rail- 

21 


roads  than  will  private  corpo- 
rations?" 

Hence,  students  of  funda- 
mental conditions  believe  that 
holders  of  legitimate  railroad 
securities  have  little  to  fear  and 
much  to  hope  for  from  govern- 
ment ownership.  So  long  as 
it  is  profitable  for  private  cor- 
porations to  operate  the  rail- 
roads, they  will  not  be  pur- 
chased by  the  government;  but 
when  it  is  unprofitable  for  pri- 
vate corporations  to  operate 
the  railroads,  then  the  govern- 
ment will  probably  be  induced 
to  purchase  them.  The  tax 
payers  have  much  more  to  fear 
from  government  ownership 
than  have  the  stockholders  of 
the   railroads.    This   is   espe- 

22 


cially  true  in  view  of  the  de- 
cision of  the  United  States 
Congress  to  make  a  valuation 
of  the  various  railroad  proper- 
ties of  the  nation. 

Property  Valuation 

This  valuation  of  the  rail- 
roads of  the  United  States  is 
the  greatest  and  most  impor- 
tant development  in  statistical 
work  ever  attempted  since  the 
inauguration  of  the  Census  De- 
partment. Although  this  val- 
uation was  at  first  feared  by 
investors,  yet  it  already  is 
proving  a  protection.  At  times, 
all  eyes  are  focussed  on  the 
Interstate  Commerce  Commis- 
sion, but  it  would  be  much 
wiser  to  give  less  attention  to 

23 


this  Commission  and  more  to 
the  men  who  appraise  the  rail- 
road systems.  Few  people  rea- 
lize the  tremendous  political, 
economic,  and  social  impor- 
tance of  this  great  work,  the 
results  of  ^vhich  will  be  far- 
reaching  for  many  years. 

The  report  of  this  valuation 
board  will  be  to  the  Interstate 
Commerce  Commission  what 
the  Constitution  of  the  United 
States  is  to  Congress  and 
legislatures.  At  present  this 
Commission  at  Washington 
has  a  free  hand  to  do  almost 
anything  it  wants  to  do;  but 
after  the  railroads  are  prop- 
erly valued  and  a  basis  has 
been  provided  upon  which 
rates,  wages,  and  dividends  can 


justly  be  based,  a  different  situ- 
ation will  exist.  Moreover,  this 
\vork  should  be  especially 
beneficial  to  the  bonds  of 
American  railroads,  the  secu- 
rity of  which  is  sure  to  be  im-^ 
proved  by  both  the  work  of 
the  valuation  board  and  any 
legislation  which  regulates  the 
issuance  of  further  securities. 

Industries  in  which  the  gov- 
ernment can  easily  supply  a 
duplicate  service  have  much  to 
fear  from  government  compe- 
tition or  operation,  but  the  rail- 
roads are  not  in  such  a  class. 
The  United  States  government 
will  never  duplicate  nor  com- 
pete with  the  present  railroads 
as  it  has  competed  with  the  ex- 
press  companies.     The   only 

25 


thing  it  can  do  is  either  to  reg- 
ulate private  ownership  or  else 
to  purchase  outright  or  guar- 
antee securities.  So  long  as  it 
gives  investors  a  fair  deal,  the 
government  will  continue  to 
have  the  privilege  of  control- 
ling without  real  ownership; 
but  whenever  it  does  not  give 
investors  fair  treatment,  it  will 
be  forced  to  purchase ;— not  for 
the  protection  of  the  shippers, 
but  for  the  protection  of  the 
investors!  Had  the  govern- 
ment not  attempted  the  work 
of  valuation,  one  might  have 
feared  that  the  Interstate 
Commerce  Commission  would 
abuse  its  power  and  soon  force 
government  ownership  upon 
the    citizens    of    the    United 

26 


States;  but  now  that  this  work 
of  valuation  has  been  started, 
there  is  little  to  fear  on  this 
score.  It  is  a  case  of  "heads  I 
Avin,  tails  you  lose"  in  favor  of 
the  owners  of  the  railroads. 
This  valuation  is  showing  such 
high  figures  as  already  to  delay 
thoughts  of  purchase,  and  later  , 
it  may  even  result  in  restrict- 
ing the  activities  of  the  Inter- 
state Commerce  Commission 
to  fairly  narrow  limits. 

Ownership  of 
Freight  Cars 

There  is,  however,  one  factor 
slowly  developing  which  may 
change  the  entire  aspect  of 
the  situation.  The  great  ad- 
vantage to  the  public  of  the 

27 


railroad  consolidations,  which 
was  so  evident  until  the  North- 
ern Pacific-Great  Northern  de- 
cision, was  the  interchange  and 
joint  ownership  of  equipment. 
For  instance,  if  the  Northwest 
were  favored  with  bounteous 
crops  and  the  crops  of  the  Cen- 
tral West  were  not  very  good, 
then  it  was  the  plan  that  any 
of  the  equipment  of  the  "Bur- 
lington" could  be  used  by 
these  two  northwestern  roads. 
In  the  same  way,  under  oppo- 
site conditions,  the  equipment 
of  the  latter  roads  could  be  sent 
into  "Burlington"  territory. 
Mr.  Harriman's  plan  for  much 
larger  railroad  systems  pro- 
vided for  the  interchange  of 
equipment  on  even  a  more 
radical  scale. 

28 


Of  course,  the  railroads 
already  have  an  association 
which  performs  certain  joint 
services;  but  no  association 
could  safely  be  formed  under 
private  ownership  actually  to 
control  this  tremendous  power 
and  finance  the  purchase  of 
new  locomotives  and  cars.  Yet 
the  growth  of  the  country  de- 
mands the  constant  increase  in 
railroad  equipment,  which,  for 
economic  purposes,  should 
al^vays  be  sent  to  the  section 
most  needing  it.  For  this  rea- 
son the  writer  believes  that  a 
movement  to  have  the  govern- 
ment assume  the  responsibility 
for  the  building  and  control  of 
future  equipment  might  be  a 
step    in   the    right    direction. 

29 


Such  a  procedure  would  ulti- 
mately mean  the  unification 
of  the  railroads  without  pri- 
vate monopoly  and  also  the 
just  and  equal  treatment  of  all 
sections  Avithout  the  necessity 
of  full  government  ownership 
or  operation.  Moreover,  by 
allow^ing  this  equipment  to 
move  freely  in  accordance 
Avith  supply  and  demand  under 
one  ownership,  great  economic 
Avaste  Avould  be  avoided. 

How  the  Nation 
Could  Save  Millions 

Railroad  men  say  that  the 
freight  cars  of  the  country  are 
in  actual  use  during  the  twenty- 
four  hours  of  the  day  on  an 
average    of    only    about  two 

30 


hours  each  day.  In  other 
words,  the  cars  are  idle  all 
but  one-twelfth  of  the  day. 
As  one  of  the  following  ta- 
bles show^s,  there  are  about 
2,300,000  freight  cars  in  the 
United  States,  and  these  are 
worth  in  round  figures  about 
$2,300,000,000.  If  only  one- 
twelfth  of  this  investment  is 
in  operation,  there  is  lost  dur- 
ing the  year  interest  on  about 
$2,000,000,000.  Continuous 
operation  for  twenty-four 
hours  could  not  be  expected, 
but  on  a  reasonable  basis  of 
efficiency  $60,000,000  or 
more  could  be  saved  each  year. 
This  distinct  loss  to  the  rail- 
roads by  reason  of  their  own- 
ing and  operating  their  own 

31 


freight  cars  could  be  obviated 
if  all  the  freight  cars  of  the 
country  viere  owned  by  one 
company,  or  by  the  govern- 
ment which  ^vould  rent  them 
to  the  railroads  as  needed  at  a 
regular  per  diem  rate.  This 
would  save  much  expense  and 
loss  of  sending  empty  cars 
back  to  their  owners,  and  of 
allowing  equipment  to  lie  idle 
at  one  point  when  it  was  badly 
needed  in  another  part  of  the 
country. 

The  w^riter  suggests  that 
such  a  great  government 
equipment  company  could  be 
organized,  Avhich  would  take 
over  from  each  road  all  of  its 
freight  car  equipment,  paying 
therefor,  say,  half  in  cash  and 

32 


half  in  the  stock  of  the  com- 
pany. In  this  way  each  road 
\vould  also  benefit  in  whatever 
saving  was  effected  by  divi- 
dends on  the  stock  of  the 
equipment  company. 

The  work  also  could  be  car- 
ried on  without  the  creeping 
in  of  graft  or  favoritism,  as 
very  feAV  additional  employees 
would  need  to  enter  the  gov- 
ernment employ  for  such 
work. 

It  appears  that  since  1889 
there  has  been  an  increase  of 
over  117  per  cent  in  the  num- 
ber of  locomotives.  As  their 
average  weight  exclusive  of 
tenders  in  the  meantime  has 
increased  from  40  to  80  tons, 
their  capacity  since  that  time 

33 


has  increased  over  300  per 
cent.  Their  tractive  power  has 
probably  increased  in  a  still 
greater  proportion.  It  is  only 
the  increase  in  size  and  po^ver 
that  has  enabled  American  rail- 
ways to  meet  the  transporta- 

SUMMARY,  SHOWING  NUMBER,  POWER,  AND 
WEIGHT  OF  LOCOMOTIVES  IN  THE  UNITED 
STATES   SINCE   THE  YEAR   1902 


Tractive 

Weight 

Average 

Year 

Number 

Power 

Without 

Weight 

(Pounds) 

render  (Tons) 

(Tons) 

1902 

41,225 

839,073,779 

2,323,877 

66.3 

1903 

43,871 

953,799,540 

2,206,687 

59.4 

1904 

46,743 

1,063,651,281 

2,889,492 

62.1 

1905 

48,357 

1,141,330,082 

3,079,673 

63.6 

1906 

51,672 

1,277,865,673 

3,459,052 

66.9 

1907 

65,388 

1,429,626,668 

3,828,045 

69.1 

tl908 

56,867 

1,498,793,551 

4,012,553 

71.0 

1909 

*56,468 

1,503,971,444 

4,056,733 

72.0 

1910 

*58,240 

1,588,894,480 

4,224,208 

73.5 

1911 

*60,162 

1,681,495,905 

4,637,653 

75.0 

1912 

60,890 

1,758,337,381 

4,790,645 

78.7 

1913 

63,198 

1,907,899,088 

6,172,213 

81.8 

1914  (est, 

.)  65,000 
s  53.3% 

2,000,000,000 

127.4% 

5,350,000 

122.5% 

82.0 

Increase  in 
eleven  year 

45.3% 

t  Excludes  831  unclassified  locomotives,  but  includes  868  loco- 
motives of  switching  and  terminal  companies. 

*  Excludes  locomotives  in  service  of  switching  and  terminal 
companies  and  unclassified  locomotives,  also  Mallet  locomotives 
in  1911. 

34 


tion  necessities  of  the  Ameri- 
can people,  and  this  increase 
must  continue  if  the  people  are 
properly  to  be  served  in  the 
future.  Hence,  the  govern- 
ment must  either  itself  finance 
the  purchase  of  this  new  equip- 
ment or  else  give  an  induce- 
ment to  investors  which  will 
cause  them  to  provide  the 
necessary  funds. 

Taken  in  connection  with 
the  following  table,  which 
gives  the  number  of  cars  built 
annually,  these  figures  show 
how  large  a  proportion  of  new 
cars  is  continually  required  to 
replace  those  destroyed,  worn 
out,  or  abandoned.  For  in- 
stance, where  more  than  3,000 
new  passenger  cars  were  built, 

35 


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there  was  an  increase  of  only 
620  cars  reported;  and  where 
over  200,000  new  freight  cars 
were  built,  the  number  re- 
ported showed  an  increase  of 
only  63,576  cars.  This  indi- 
cates that  it  takes  approxi- 

SUMMARY  SHOWING  THE  NUMBER  OF  CARS 
AND  LOCOMOTIVES  BUILT  SINCE  1899 


Number 

Number 

Year 

Locomo- 

Passenger 

Freight 

tives 

Cars 

Cars 

1899 

2,475 

1,306 

119,886 

1900 

3,153 

1,636 

115,631 

1901 

3,384 

2,066 

136,950 

1902 

4,070 

1,948 

162,599 

1903 

5,162 

2,007 

153,195 

1904 

3,441 

2,144 

60,806 

*1905 

5,491 

2,551 

168,006 

*1906 

6,962 

3,167 

243,670 

*1907 

7,362 

5,457 

284,188 

*1908 

2,342 

1,716 

76,656 

*1909 

2,887 

2,849 

96,419 

*1910 

4,765 

4,412 

186,357 

*1911 

3,530 

4,246 

72,161 

tl912 

4,916 

3,060 

152,429 

tl913 

5,332 

3,296 

207,684 

1914  (Est.) 

5,000 

3,000 

200,000 

Total 

70,241 

44,849 

2,435,536 

♦Includes  Canadian  output. 

t  Includes  Canadian  output  and  equipment  built  in  railroad  shops. 

37 


mately  4.7  per  cent  as  many 
passenger  cars  and  6.2  per  cent 
as  many  freight  cars  as  those 
already  in  service  to  make 
good  the  annual  losses. 

During  the  six  years  follow- 
ing 1907  there  was  an  increase 
of  only  12  per  cent  in  freight 
cars  and  31  per  cent  in  their 
capacity,  against  31  per  cent 
and  54  per  cent,  respectively, 
for  only  five  years  preceding 
1907. 

It  is  the  condition  demon- 
strated by  these  figures  that 
causes  the  writer  to  regard  a  re- 
turn to  normal  traffic  demands 
with  great  apprehension. 

Steel  Cars 

In  August,  1913,  the  Special 
Committee    on   Relations    of 

38 


Railway  Operation  to  Legisla- 
tion issued  a  bulletin  giving 
the  number  of  steel  and  steel 
under-frame  passenger  cars  in 
service  and  an  approximation 
of  what  it  would  cost  to  re- 
place the  remaining  wooden 
equipment  with  steel.  After 
showing  that  the  construction 
of  wooden  equipment  in  the 
United  States  had  practically 
ceased  (only  3.3  per  cent  of 
that  built  in  1913  being  wood), 
the  Committee  gave  the  fol- 
lo>ving  approximation  of  cars 
in  service: 

STEEL  PASSENGER  CARS  IN  SERVICE 


steel        Steel  Under-frame 


January  1,  1909   . 
January  1,  1910   . 
January  1,  1911   . 
January  1,  1912   . 
January  1,  1913   . 

629 

.      1,117 

.      3,133 

5,347 

.      7,271 

673 
1,098 
1,636 
2,399 
3,296 

Increase  1913  over  19 
Per  cent  of  increase 

99     .             6,642 
.        .      1,055% 

2,623 
389% 

39 


The  Committee  further  fur- 
nished a  summary  giving  an  ap- 
proximation of  what  it  would 
cost  to  replace  the  remainder 
of  the  passenger  equipment 
\vith  steel  cars,  as  follows: 

COST  OF  REPLACING  WOODEN  CARS 
WITH  STEEL 


Average 

Number 

Cost 

Amount 

Postal 

680 

$11,000 

$7,480,000 

Mail  and  baggage 

2,724 

10,000 

27,240,000 

Mail,  baggage  and  passen- 

- 

ger 

679 

10,000 

6,790,000 

Baggage  and  passenger 

3,757 

10,000 

37,570,000 

Baggage  or  express 

7,431 

8,500 

63,163,600 

Passenger 

23,692 

12,800 

303,257,600 

Parlor,  sleeping,  dining 

6,864 

22,000 

151,008,000 

Business 

774 

15,000 

11,610,000 

Motor 

326 

20,000 

6,500,000 

Total 

46,926 

$614,619,100 

Cost  of  All  Equipment 

In  the  process  of  renovation 
and  replacement,  four-fifths 
of  the  locomotives,  three- 
quarters  of  the  passenger  cars, 
and  four-fifths  of  the  freight 

40 


cars  have  been  bought  since 
1899.  Each  year  the  average 
cost  of  all  locomotives  ap- 
proaches the  average  sales 
price  of  one  of  the  largest 
manufacturers  in  1911,  viz., 
$18,270  per  engine.  It  is 
within  the  mark  to  place  their 
average  cost  at  $  1 6,000.  A  fair 
estimate  for  wooden  passen- 
ger equipment  is  $6,500  per 
car,  for  freight  cars  $1,000, 
and  for  company's  cars  $600. 
Accepting  these  figures,  one 
arrives  at  the  following  ap- 
proximation : 

COST  OF  ALL  EQUIPMENT 

(240,600  miles  represented) 


63,198  locomotives  at  $16,000 
10,567  steel  passenger  cars  at  $12,000 
40,282  wooden  passenger  cars  at  $6,500 
2,300,000  freight  cars  at  $1,000    . 
119,819  company  cars  at  $600      . 


$1,011,168,000 

126,804,000 

261,833,000 

2,300,000,000 

71,891,400 


Total  cost  of  equipment  .    $3,771,686,400 

41 


"  The  cost  of  American  pas- 
senger cars  alone  would  pur- 
chase the  entire  railway  sys- 
tem of  Switzerland;  the  cost  of  ^^ 
American  locomotives  alone 
would  pay  for  all  the  railroads 
of  Belgium,  Sweden,  Norway, 
and  Denmark;  the  cost  of 
American  freight  cars  alone 
would  buy  the  state  system  of 
Italy  and  Hungary  with  that 
of  Holland  thrown  in,  and  the 
cost  of  all  American  rolling 
stock  would  pay  for  the  entire 
French  railway  system— pri- 
vate and  state— and  in  each  case 
the  American  trader  would 
get  the  worst  of  the  bargain. 
The  mere  maintenance  and 
replacement  of  the  three  and 
three-quarter  billion  dollar  in- 

42 


vestment  in  equipment  cost 
over  $520,000,000  in  1913. 
If  4  per  cent  is  a  reasonable 
allowance  for  yearly  deprecia- 
tion, the  reader  will  perceive 
that  nearly  $150,000,000  of 
this  amount  was  required  to 
take  care  of  this  account 
alone.  In  fact,  the  annual 
replacements  of  locomotives, 
passenger  cars,  and  freight  cars 
figure  out  more  nearly  $165,- 
000,000.  If  either  of  these 
sums  be  deducted  from  the 
total  cost  of  maintenance  of 
equipment,  it  would  leave  at 
most  only  $370,000,000,  from 
which  the  million  dollar  a  day 
efficiency  theorists  would 
save  $365,000,000!"* 

*  Slason  Thompson 

43 


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44 


A  record  of  the  several 
classes  into  which  cars  are 
divided  as  reported  to  the 
Commission  since  1902  is 
shown  in  the  table  on  the  pre- 
ceding page. 

All  of  which  means,  that  if 
the  government  begins  to  dis- 
cuss the  purchasing,  control- 
ling, and  leasing  of  all  freight 
equipment,  both  shippers  and 
investors  should  willingly  give 
the  question  careful  considera- 
tion; but  the  general  question 
of  government  ownership  and 
operation  of  the  entire  rail- 
roads of  the  United  States  need 
not  be  feared  by  anyone  at 
present,— unless  by  the  tax 
payer. 


45 


The 

Second 

Section 


Railroads  and 
Employees 

|^=\he  President  of  the  New 
\^  York,  New  Haven  and 
Hartford  Railroad  Company, 
before  the  committee  on  rail- 
roads of  the  Massachusetts 
legislature,  once  exhibited 
some  interesting  statistics 
showing  the  direct  interest  of 
the  New  England  States  in  the 
New  Haven-Boston  &  Maine 
Railroad  System.    Said  he: 

"As  an  illustration  of  the  large  number 
of  people  who  are  dependent  on  these  rail- 
roads for  their  daily  bread  and  butter,  it 
should  be  noted  that  there  are  about  60,000 

49 


security  holders,  and  in  addition  to  the 
security  holders,  there  are  about  90,000  em- 
ployees. These  150,000  are  taking  care  of 
families  of  approximately  four  each.  This 
totals  about  600,000  persons,  or  one-eleventh 
of  the  population  of  the  New  England 
States.  In  these  six  states  is  one-sixteenth 
of  the  population  of  the  United  States,  and 
one-sixth  of  the  bank  deposits."  * 

This  statement  was  officially 
made  to  show  the  tremendous 
interest  which  New  England 
has  in  its  local  railroad  situa- 
tion and  how  directly  depend- 
ent the  people  thereof  are  on 
the  railroads— not  to  mention 
the  thousands  of  shippers  and 
others  partly  dependent  there- 
on. These  figures  show  that 
one-eleventh  of  the  entire 
population  of  New  England 
is  either  wholly  or  partly  de- 
pendent for  direct  support  on 

*  Statement  of  Howard  F.  Elliott,  June  8,  1914 

50 


two  railroad  properties.  These 
statistics,  liowever,  \vere  very 
incomplete,  as  only  the  New 
Haven-Boston  &  Maine  Sys- 
tem was  here  considered.  In 
addition,  there  are  thousands 
of  New  England  families  who 
are  wholly  dependent  upon 
the  earnings  of  other  New 
England  railroads,  and  there 
are  tens  of  thousands  who  are 
partly  dependent  on  the  earn- 
ings of  railroads  outside  of 
New  England.  Therefore,  if 
these  statistics  should  be  re- 
vised to  apply  to  other  rail- 
roads and  not  be  limited  to 
simply  the  New  Haven-Bos- 
ton &  Maine  System,  their 
magnitude  and  importance 
would  be  astounding. 

51 


A  Fallacy 

However,  the  most  serious 
feature  was  not  suggested  be- 
fore the  above-mentioned  com- 
mittee. Not  only  (and  to  be 
conservative,  figures  on  the 
New  Haven-Boston  &  Maine 
System  only  will  be  used  in 
this  connection),  is  one- 
eleventh  of  the  population  of 
New  England  directly  depend- 
ent on  the  railroads,  but  this 
eleventh  is  directly  divided 
against  itself.  Of  the  600,000 
persons  above  referred  to,  240,- 
000  represent  security  holders 
and  360,000  represent  em- 
ployees. To  help  smooth 
troubled  waters,  it  is  often 
well  to  assert  that  "the  inter- 
ests of  capital  and  labor  are 

52 


mutual  and  employers  and  em- 
ployees should  work  in  har- 
mony," but  an  analysis  of  the 
case  does  not  show  that  this 
statement  is  true.  If  the  inter- 
ests of  buyers  and  sellers  are 
mutual,  then  are  the  interests 
of  stockholders  and  employees 
mutual.  To  the  extent  that 
the  interests  of  the  buyers  and 
sellers  are  mutual,  to  such  an 
extent  are  the  interests  of 
stockholders  and  employees 
mutual,  but  to  no  greater  ex- 
tent. As  all  know  that  in  many 
ways  the  interests  of  buyers 
and  sellers  are  diametrically 
opposed,  one  striving  to  get  as 
low  a  price  as  possible  and  the 
other  as  high  a  price  as  possible, 
it  takes  considerable  stretching 

53 


of  the  imagination  to  believe 
that  the  interests  of  stockhold- 
ers and  employees  of  railroads 
are  today  mutual.  This  means 
that  one-eleventh  of  the  popu- 
lation of  New  England  (and  if 
railroads  outside  of  New  Eng- 
land were  included  it  would 
raise  this  percentage  greatly), 
is  divided  against  itself.  This 
is  a  very  serious  situation.  It 
is  much  more  serious  that  this 
large  percentage  of  the  people 
should  be  divided  against  itself, 
than  that  they  should  not  agree 
regarding  government  owner- 
ship or  the  temporary  policy  of 
an  Interstate  Commerce  Com- 
mission. 

From  the  statement  a  still 
further  important  lesson  may 

54 


be  learned  which  apparently 
no  one  has  seen  fit  to  mention. 
This  is  the  fact,  that  of  the 
600,000  people  (representing 
one-eleventh  of  the  population 
of  New  England,  reckoning 
four  to  a  family),  which  is 
divided  against  itself,  the  em- 
ployees are  in  the  great  major- 
ity. Hence,  if  ever  a  real  con- 
flict comes  between  these  two 
opposing  interests,  there  is  no 
question  as  to  who  will  win. 
Instead  of  us  stockholders 
being  bitter  toward  the  em- 
ployees, should  not  we  be 
grateful  that  they  have  let  us 
off  so  easily  as  they  have? 
Moreover,  an  analysis  of  these 
figures  makes  the  case  appear 
even  more  serious  than  at  first 

55 


glance.  Not  only  do  the  em- 
ployees and  their  families  num- 
ber 360,000,  compared  with 
240,000  security  holders,  but 
most  of  these  360,000  are 
wholly  dependent  for  their 
income  on  this  one  railroad 
system,  while  the  security 
holders  are  only  in  part  de- 
pendent thereon.  It  probably 
could  be  shown  that  90  per 
cent  of  the  security  holders 
could  entirely  forego  their  in- 
come from  this  railroad  sys- 
tem without  suffering,  while 
no  such  condition  is  possible 
to  imagine  among  the  railroad 
employees.  Of  course,  to  the 
extent  that  stockholders  have 
themselves,  through  thrift  and 
industry,  acquired  this  capital 

56 


they  are,  from  an  economic 
point  of  view,  as  fully  entitled 
to  the  income  thereon  as  the 
railroad  employee  is  entitled 
to  his  wage.  In  most  cases, 
however,  the  interest  of  the 
security  holders  has  been  ac- 
quired through  inheritance  or 
other  indirect  means,  and  in 
many  cases  they  are  dissipat- 
ing the  inheritance  rather  than 
conserving  it. 

Social  Questions 
Involved 

But  this  is  not  all.  An  ex- 
amination of  the  facts  shows 
that  where  the  young  people 
who  have  inherited  railroad 
securities  average  to  have  only 
one  or  two  children,  the  em- 

57 


ployees  of  these  same  railroads 
average  double  the  number. 
As  the  nation  is  much  in  need 
of  a  greater  birth  rate  among 
such  classes,  there  is  an  addi- 
tional reason  why  employees 
usually  command  the  support 
of  the  public  when  struggles 
come,  and  why  it  is  so  diffi- 
cult to  organize  investors  to 
fight  for  their  "rights."  Sev- 
eral attempts  have  recently 
been  made  to  form  associa- 
tions of  investors  to  reject 
unitedly  the  demands  of  the 
government  and  the  em- 
ployees; but  all  such  attempts 
have  been  unsuccessful.  The 
only  explanation  has  been 
that  "so  many  stockholders 
have  acquired  their  holdings 

58 


through  inheritance  or  other 
unearned  means  that  they 
are  reluctant  to  assert  their 
rights."  Apparently  either 
our  consciences  trouble  us 
or  else  -we  are  hopelessly 
lazy  and  indifferent.  Indif- 
ference and  absentee  land- 
lordism usually  go  hand  in 
hand.  Railroads  are  like  other 
industries  in  that  so  long  as 
they  are  o\vned  and  managed 
by  those  actually  engaged  in 
the  work  and  living  in  the  ter- 
ritory, they  are  free  from  both 
labor  troubles  and  financial 
scandals.  When,  however,  the 
ownership  becomes  scattered 
or  absent,  and  the  property  is 
managed  by  proxy,  then  dis- 
content and  corruption  begin. 

59 


Whatever  may  be  the  results 
of  conflicts  between  the  rail- 
roads and  the  government,  or 
between  the  railroads  and  their 
employees,  one  thing  is  certain, 
viz,,— either  absentee  stock- 
holders will  be  made  respon- 
sible or  else  they  ^ill  be 
stripped  of  the  right  to  vote 
in  the  affairs  of  the  railroad. 
The  great  struggle  between 
labor  and  capital  may  be  cen- 
turies in  being  settled.  Cer- 
tainly it  can  never  be  settled  by 
eliminating  either  party.  Capital 
is  as  necessary  as  labor,  and  its 
conservation  must  be  encouraged ; 
but  labor  is  as  necessarv  as 
capital,  and  is  it  not  also  en- 
titled to  the  equity  after  capi- 
tal,   management     and    labor 

60 


have  been  paid  the  market 
rate? 

But  to  return  to  the  original 
illustration,  not  only  are  the 
employees  and  their  families 
in  the  vast  majority,  but  ^ith 
these  persons  it  is  a  question 
of  life  and  death,  while  ^*ith 
the  security  holders  it  is  not 
such  a  serious  matter.  For 
you  and  me  to  lose  our  di\i- 
dends  on  New  Haven  or  Bos- 
ton &  Maine  stock  is  not  such 
a  serious  matter  as  for  a  man 
who  has  been  a  conductor  on 
one  of  these  systems  for  a 
number  of  years  to  lose  his 
job. 

Moreover,  it  ^*lQ  be  noticed 
that  the  president  of  the  New 
Haven  Railroad  used  the  term 


"  security  holders  "  rather  than 
"  stockholders,"  thus  including 
all  bondholders  and  notehold- 
ers as  well  as  stockholders. 
As  the  holders  of  bonds  and 
notes  have  no  voting  power, 
but  a  guaranteed  rate  of  inter- 
est instead,  the  situation  is  still 
more  dubious  from  the  stock- 
holders' viewpoint.  If  a  fight 
ever  comes  between  the  em- 
ployees and  the  stockholders, 
it  will  be  seen  that  the  former, 
from  every  point  of  view,  not 
only  are  in  the  great  majority 
but  that  they  have  infinitely 
more  to  fight  for.  Further- 
more, this  shows  conclusively 
that  stockholders  have  much 
more  to  fear  from  the  em- 
ployees than   from   the  gov- 

62 


ernment,  the  Interstate  Com- 
merce Commission,  or  any 
federal  or  state  board. 

It  is  universally  known  that 
employees  are  very  much  bet- 
ter organized,  are  much  more 
loyal  to  one  another,  and  are 
giving  these  matters  much 
more  thought  than  are  the 
stockholders  of  the  roads. 
These  360,000  employees* 
and  their  families  are  continu- 
ally holding  meetings  and  dis- 
cussing \vays  and  means  to 
increase  their  income;  Avhile 
the  stockholders  hold  meet- 
ings only  once  a  year,  and 
these  meetings  are    attended 

*  Readers  should  keep  constantly  in  mind  that  the 
figures  herein  given  apply  only  to  New  England. 
In  other  sections  of  the  United  States  the  employees 
are  in  a  very  much  greater  majority  compared  with 
the  security  holders. 

63 


by  only  about  one  per  cent  of 
those  who  should  attend. 

A  Solution 

To  the  writer's  mind  there  is 
but  one  thing  for  investors  in 
railroads  to  do,  namely,  to 
work  out  a  plan  whereby  after 
the  market  price  is  paid  for 
Avages,  management,  and  capi- 
tal, the  balance  will  go  to  the 
employees.  This  could  be 
brought  about  by  us  stock- 
holders accepting  a  preferred 
stock,  based  upon  the  official 
government  valuation  for  our 
present  holdings,  and  giving 
to  the  employees  (either  out- 
right or  in  trust)  an  industrial 
partnership  stock  representing 
the  earnings  over  fair  require- 

64 


ments  for  expenses,  interest, 
depreciation  and  preferred 
dividends.* 

Not  only  would  this  give 
stockholders  preferred  shares 
for  present  legitimate  hold- 
ings, but  it  Avould  accomplish 
two  other  purposes,  namely: 

(1)  The  voting  power  would 
be  exercised  by  those  who  are 
to  have  the  equity,  and  those 
who  are  to  have  the  equity 
would  be  men  engaged  in  the 
industry  and  fully  acquainted 
with  the  needs  and  opportu- 
nities thereof.  This  would  at 
once  eliminate  absentee  own- 
ership, which  is  a  great  curse 
today,  and,  as  above  suggested, 
at  the  bottom  of  most  labor 

*  For  further  particulars  of  this  plan,  see  the  writer's 
book  entitled,  "  The  Future  of  Corporations." 


troubles  and  financial  scan- 
dals. 

(2)  It  would  turn  the  efforts 
of  the  vast  army  of  employees 
in  favor  of  legislation  that 
would  benefit  the  railroads 
rather  than  in  favor  of  legisla- 
tion against  the  railroads,  as  at 
present.  Of  course  the  railroad 
employee  should  even  now 
favor  legislation  which  bene- 
fits the  railroads,  but  for  him 
to  do  this  is  contrary  to  hu- 
man nature. 

One  often  allows  his  spite  to 
get  the  better  of  his  judgment, 
and  this  is  probably  why  most 
railroad  employees  are  today 
foolishly  backing  the  politi- 
cians who  are  attempting  to 
rob  the  railroads.    The  only 

66 


other  possible  explanation  is 
that  these  employees  feel  in- 
tuitively that  the  railroads 
Avill  some  day  become  their 
property,  and  it  is  in  their  in- 
terest to  batter  down  the  price 
of  the  securities  as  much  as 
possible  before  such  a  time 
arrives! 

Just  as  soon,  however,  as 
we  stockholders  accept  a  share 
of  non- voting  preferred  stock 
for  our  present  stock  and  give 
to  the  employees  all  the  equity 
remaining  after  the  payment 
of  a  market  rate  of  interest  on 
a  fair  valuation,  the  efforts 
of  these  employees  and  their 
friends  will  be  directed  toward 
securing  justice  from  the  gov- 
ernment.    If    the    time    ever 

67 


comes  when  they  abuse  polit- 
ical influence  to  the  disadvan- 
tage of  the  country,  railroad 
employees  can  be  disfran- 
chised by  an  amendment  to 
the  Constitution,  as  is  now 
the  case  with  the  residents  of 
the  District  of  Columbia. 

0^vnership  of 
American  Railways 

At  the  date  of  the  last  elec- 
tion of  directors  prior  to  June 
30,  1913,  the  records  of  the 
433  companies  showed  406,- 
315  shareholders,  an  increase 
of  28,013  over  the  number 
reported  for  practically  the 
same  roads  in  1912.  This  is 
slightly  over  two  shareholders 
per  mile  of    line.     Assuming 

68 


that  the  same  proportion  main- 
tains for  the  mileage  not  re- 
ported, we  obtain  a  total  of 
over  half  a  million  sharehold- 
ers in  the  252,000  miles  of 
railway  in  the  United  States. 

The  statement  on  the  follow- 
ing page  shows  how  the  num- 
ber of  shareholders  in  nineteen 
of  the  principal  roads  has  in- 
creased since  the  Interstate 
Commerce  Commission  re- 
ported in  1904  that  there  were 
only  327,785  shareholders  in 
1,182  roads. 

From  this  it  appears  that 
the  number  of  shareholders  in 
these  nineteen  roads  has  more 
than  doubled  in  nine  years. 
Moreover,  they  now  number 
almost  as  many  as  the  total 

69 


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70 


reported  for  all  the  companies 
in  1904.  This  signifies  a  dis- 
tribution of  railway  owner- 
ship little  dreamed  of  in  the 
nightmares  of  railway  baiters. 
Of  the  89,313  shareholders 
reported  for  the  Pennsylvania 
Railroad,  March  1,  1914,  no 
less  than  48  per  cent  were 
women. 

The  average  holding  per 
shareholder  in  the  United 
States  is  about  $18,000,  from 
which  the  average  dividend  is 
approximately  $600,  or  about 
the  yearly  pay  of  a  railway 
laborer.  Of  course,  the  great 
majority  of  shareholders  did 
not  hold  180  shares  each,  or 
anything  like  it,  and  it  is  safe 
to  say  that  there  are  350,000 

71 


holders  of  railway  shares 
whose  income  therefrom  does 
not  equal  the  average  pay  of 
all  railway  employees.  It  is 
even  probable  that  this  num- 
ber is  as  high  as  400,000. 

Employees  and 
Their  Compensation 

The  433  companies  report- 
ing had  1,814,047  persons  in 
their  employ  on  June  30,1913, 
or  144,238  more  than  were 
reported  to  the  Commission 
in  1911,  and  within  34,836  of 
the  total  given  as  the  result  of 
a  special  inquiry  by  the  Com- 
mission in  June,  1913.  In 
1913  there  were  also  59,162 
persons  employed  in  the  so- 
called  "outside  operations"  of 

72 


the  railways,  bringing  the  total 
employed  by  433  companies 
up  to  1,873,061.  From  these 
corroborative  figures  it  ap- 
pears that  there  were  over 
1,910,000  persons  directly  in 
the  employ  of  the  railways  of 
the  United  States  in  1913. 

Turning  to  the  compensa- 
tion of  this  great  industrial 
army,  the  payroll  of  the  com- 
panies reporting  to  this  Bureau 
amounted  to  $1,373,420,654; 
or,  including  outside  opera- 
tions, $1,401,211,961.  This 
makes  it  safe  to  estimate  the 
compensation  of  all  railway 
employees  in  the  United  States 
at  fully  $1,439,000,000. 

This  payroll  absorbs  over 
44  per  cent  of  railAvay  reve- 

73 


nues  and  constitutes  more 
than  63  per  cent  of  their  oper- 
ating expenses.  Successive 
awards  of  arbitrators  have 
demonstrated  the  impotence 
of  railway  managers  to  keep 
the  labor  unit  within  reason- 
able economic  bounds. 

The  average  daily  compen- 
sation paid  per  man  rose  from 
$2.44  in  1912  to  $2.49  in 
1913,  the  latter  figure  show- 
ing an  advance  of  20  per  cent 
over  1905,  when  the  Bureau 
began  compiling  the  informa- 
tion. This  20  per  cent  in- 
crease in  the  wage  rate  means 
that  in  1913  the  railways  paid 
$225,000,000  more  for  labor 
than  would  have  been  paid 
for  the  same  number  of  days 
worked  under  the  1905  scale. 

74 


The  aggregate  number  of 
days  worked  by  the  employ- 
ees of  the  433  companies  re- 
porting in  1913  was  551,134,- 
689,  or  304  days  per  person, 
against  508,732,152  in  1912, 
when  the  average  per  man 
was  301  days.  These  averages 
are  not  strictly  accurate,  be- 
cause the  number  of  employ- 
ees is  not  an  average  for  the 
year. 

The  summary  on  the  follow- 
ing pages  gives  the  number, 
compensation,  and  average 
pay  of  the  several  classes  of 
employees  of  the  roads  report- 
ing to  the  Bureau  for  the  year 
1913,  together  with  the  aggre- 
gate reported  to  the  Commis- 
sion for  preceding  years. 

75 


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77 


In  talking  with  these  em- 
ployees, including  those  of  the 
most  radical  tendencies,  the 
writer  seldom  hears  the  orig- 
inal founder  of  an  enterprise 
criticized.  The  man  who 
started  with  nothing,  but  who 
through  economy,  industry, 
and  intelligence  has  created  a 
large  business,  commands  the 
respect  of  workingmen.  They 
know  that  he  started  with  no 
more  than  they  had,  but 
through  sheer  industry  and 
perseverance  has  forged  ahead. 
Moreover,  as  long  as  such  a 
man  continues  in  control  of 
his  plant,  he  has  very  few,  if 
any,  labor  difficulties.  Having 
himself  worked  at  the  bench, 
he  sympathizes  w^ith  his  men, 

78 


while  the  men  likewise,  know- 
ing his  struggles,  respect  or 
fear  him. 

The  trouble  comes  Avhen  the 
original  founder  dies  or  retires 
from  business  and  the  man- 
agement falls  into  the  hands 
of  inefficient  sons  or  else  ab- 
sentee stockholders.  Work- 
men do  not  object  to  the  orig- 
inal founder  having  both  the 
property  and  the  control;  nor 
do  they  object  to  the  children 
or  other  heirs  holding  the 
property,  but  for  these  chil- 
dren or  other  stockholders 
Avho  know  little  about  the 
business  to  have  control, 
seems  unjust  and  unwise  for 
all  interested.  Often  do  men 
who  have  long   been  in  the 

79 


employ  of  a  plant  know  much 
more  about  the  management 
than  these  rich  men's  sons  or 
distant  stockholders.  More- 
over, such  conditions  not  only 
act  adversely  on  labor,  but  are 
detrimental  to  the  interests  of 
capital  as  well.  Absentee 
ownership  and  the  failure  of 
men  to  act  as  really  efficient 
trustees  in  a  business  in  which 
they  are  not  pecuniarily  inter- 
ested are  the  causes  of  most 
of  the  large  railroad  and  in- 
dustrial disasters.  Valuable 
railroads  such  as  the  New 
York,  New  Haven  and  Hart- 
ford, the  Boston  and  Maine, 
the  Pere  Marquette,  the  Chi- 
cago, Rock  Island  and  Pacific, 
the  Cincinnati,  Hamilton  and 

80 


Dayton,  are  in  their  pres- 
ent unsatisfactory  condition, 
owing  to  this  very  cause. 

Hence,  in  order  both  to 
avoid  future  labor  conflicts 
and  to  protect  one's  invest- 
ment, is  it  not  wise  now^  to 
devise  plans  which  will  tend 
to  prevent  absentee  control  in 
the  hands  of  persons  who  are 
not  engaged  in  the  industry  or 
acquainted  with  conditions? 
This  of  course  means  the  de- 
vising of  methods  whereby 
the  more  important  employ- 
ees will  be  encouraged  gradu- 
ally to  acquire  the  control  and 
the  equity  belonging  thereto. 

As  a  preliminary  step,  the 
writer  believes  much  could  be 
accomplished  by  repealing  the 

81 


existing  legislation  relating  to 
the  present  use  of  proxies, 
which  use  was  never  intended 
when  such  legislation  was  first 
devised.  In  place  thereof,  leg- 
islation could  be  passed  per- 
mitting the  voting  by  a  joint 
committee  of  three,  of  such 
stock  as  is  not  represented  in 
person  by  actual  OAvners  at 
stockholders'  meetings.  This 
committee  should  be  made  up 
of  one  member  chosen  by  the 
directors— subject  to  the  ap- 
proval of  stockholders  pres- 
ent—one member  chosen  by 
the  employees,  and  a  third 
chosen  by  these  two  members 
jointly.  To  prevent  a  dead- 
lock, it  could  be  provided  that 
if  such  a  committee  were  not 

82 


formed  and  ready  to  act  for 
any  meeting,  such  stockhold- 
ers'meeting  must  adjourn  with 
the  understanding  that  if  an 
agreement  on  all  three  mem- 
bers was  not  reached  within 
thirty  days,  vacancies  on  said 
proxy  committee  could  be 
filled  by  certain  public  offi- 
cials. 

-jt  1*  -<  <  < 
This  chapter  and  the  remain- 
ing one  have  been  written 
under  the  supposition  that  the 
capitalistic  policy  is  longer  to 
remain  in  force  and  that  rail- 
roads will  continue  to  be 
operated  for  profit  rather  than 
to  transport  persons  and 
freight  safely  and  expedi- 
tiously.    When    the    nation 

83 


realizes  that  the  capitalistic 
system  is  foolish,  wasteful,  and 
unjust,  and  frankly  determines 
that  railroads  shall  be  run  to 
facilitate  communication  with 
the  greatest  good  and  least 
harm  to  human  life— irrespec- 
tive of  profit— then  govern- 
ment ownership  will  be 
justified  and  the  remainder  of 
this  book  not  worth  the 
reading.       ^ 

Before  such  a  time  comes, 
however,  the  voters  of  the 
nation  should  be  systematic- 
ally trained  for  the  event 
through  the  teaching  in  the 
homes  and  schools  of  the 
fundamentals  of  life,— such  as 
honesty,  moral  responsibility, 
and  the  necessity  of  sacrifice. 

84 


In  fact,  if  Congress  should 
today  decide  to  take  over 
the  railroads,  it  should  make 
the  date  of  change  ten  years 
hence  and  begin  at  once 
systematically  to  prepare  the 
people  for  the  event.  Legisla- 
tion alone  cannot  bring  about 
better  conditions.  It  must  be 
accompanied  at  every  step  by 
an  advance  in  the  intelligence 
and  character  of  the  people. 
Religion  must  go  hand  in  hand 
with  legislation  and  intelli- 
gence. If  government  owner- 
ship of  railroads  or  certain 
other  socialistic  plans  were 
tried  today,  they  would  sig- 
nally fail  in  accomplishing 
their  purpose  because  the 
great  majority  of  people  are 

85 


still  selfish.  When  the  major- 
ity of  voters  see  the  follies  of 
the  capitalistic  system,  and 
themselves  determine  to  lead 
a  life  of  service,  then  legisla- 
tion is  desirable  to  make  the 
minority  adopt  the  better 
methods.  Until,  however,  the 
majority  have  truly  reached 
a  certain  stage  of  religious 
development,  any  legislation 
in  advance  of  their  position 
is  useless. 

This  is  a  great  lesson  which 
the  friends  of  labor  and  all 
socialistic  movements  must 
learn,  viz.:  that  legislation  is  of 
no  avail  in  affecting  the  actions  of 
the  majority,  nor  in  bringing 
about  changes  for  which  the 
majority  are  not  intellectually 

86 


and  religiously  prepared.  "A 
river  cannot  rise  higher  than 
its  source,"  and  a  government 
cannot  attain  a  greater  degree 
of  unselfish  efficiency  than 
the  people  who  form  the 
government  have  attained. 
Further,  not  only  is  the  above 
true,  but  the  efficiency  of  a 
government,  owing  to  the  law 
of  action  and  reaction,  is  to  a 
certain  extent  limited  by  the 
condition  of  the  worst  element 
in  the  nation.  This  is  an  eco- 
nomic reason  for  all  social 
movements  tending  to  benefit 
conditions  in  sections  and  in- 
dustries with  which  we  are 
not  directly  related. 


87 


The 

Third 

Section 


Service 
Versus  Rates 


(D 


|Ould  you  rather  pay  two 
and  a  half  cents  a  mile 
and  have  a  comfortable  jour- 
ney, arriving  safely  and 
promptly  at  your  destination, 
or  pay  two  cents  a  mile  and 
be  killed  en  route?''  This  is  a 
question  Avhich  a  famous  rail- 
road president  once  asked  me 
in  connection  with  a  discus- 
sion of  the  subject  treated  in 
this  chapter.  He  also  showed 
what  a  little  difference  a  quar- 

91 


ter,  or  even  a  half  cent  a  mile 
makes  to  each  individual,  and 
yet  what  a  great  difference  it 
makes  to  the  railroads.  With 
a  given  individual,  such  an 
increase  would  amount  to 
only  1/1000  of  his  annual 
expenses,  but  it  would  result 
in  doubling  the  net  income  of 
the  railroads  from  passenger 
traffic.  In  the  same  Avay,  a 
slight  increase  of  only  5  per 
cent  in  freight  rates  would 
result  in  an  increase  of  from  15 
to  25  per  cent  in  the  total  net 
earnings  derived  from  freight 
traffic.  Briefly,  the  immediate 
future  of  the  railroads  depends 
on  the  collection  and  proper 
use  of  a  quarter  of  a  cent  per 
mile! 
Of   course,  if  railroads   are 

92 


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^ 


t^.^fj 


pen 
rate 
divi 

in 
rate 

ol 

usei 

lort 

the 

slig 

are 

adi 

the: 

lab( 

sar 

t^'i 

on 

am 

th( 

ac 

pa 


permitted  to  charge  additional 
rates  only  to  declare  additional 
dividends,  there  is  little  object 
in  allowing  them  additional 
rates,  but  if  a  fair  proportion 
of  the  additional  income  is 
used  for  increasing  the  com- 
fort and  safety  of  travel,  is  not 
the  public  better  off  with  a 
slightly  higher  rate?  There 
are  only  one  hundred  cents  in 
a  dollar,  and  if  seventy-five  of 
these  cents  are  required  for 
labor,  taxes,  and  other  neces- 
sary expenses,  this  leaves  only 
twenty -five  cents  for  interest 
on  funded  debt,  betterments, 
and  dividends.  Moreover, 
these  percentages  represent 
actual  conditions  during  the 
past  few  years.  Of  the  twenty- 

93 


Wise  Versus 
Questionable  Legislation 

The  Avriter  is  certainly  not 
one  of  those  persons  who  be- 
lieve in  letting  the  railroads 
and  other  corporations  alone. 
Were  it  not  for  the  present 
legislation,  ^ve  doubtless 
would  today  be  almost  slaves 
to  these  corporations.  On  the 
other  hand,  there  is  a  vast  dif- 
ference in  legislation.  Such 
legislation  as  attempts  to  set 
aside  the  fundamental  laws  of 
supply  and  demand,  action  and 
reaction,  reward  and  punish- 
ment, is  unwise,  while  a  large 
additional  class  of  legislation 
is  questionable. 

The  most  flagrant  example 

96 


of  unwise  railroad  legislation 
is  the  arbitrary  rate  reduction 
demanded  by  certain  states, 
when  the  primary  object  de- 
sired is  better  service  and  safer 
travelling  conditions.  The 
idea  that  a  farmer  can  obtain 
empty  cars  by  favoring  legisla- 
tion for  reduced  rates,  shows 
an  utter  lack  of  knowledge  in 
elementary  arithmetic.  Yet  90 
per  cent  of  the  anti-railroad 
legislation  can  directly  be 
traced  to  personal  spite  on  the 
part  of  disgruntled  shippers 
and  passengers.  A  man,  for 
instance,  who  has  been  treated 
disrespectfully  by  a  poorly 
paid  freight  agent  or  a  saucy 
conductor  determines  to  have 
vengeance   on    the   railroads, 

97 


Instead,  however,  of  demand- 
ing that  the  railroads  employ 
a  higher  grade  of  help,  and 
alloAving  them  to  assess  a 
proper  proportion  of  the  in- 
creased expense  on  the  public, 
this  disgruntled  patron  inaug- 
urates legislation  to  reduce 
freight  or  passenger  rates  or 
to  inflict  some  other  uneco- 
nomic burden  on  the  corpo- 
ration! 

An  illustration  of  wise  legis- 
lation is  that  of  providing  for 
the  elimination  of  grade  cross- 
ings \vhere  the  expense  is 
equitably  divided  among  the 
railroad,  the  state  and  the  mu- 
nicipality. To  remove  all  the 
grade  crossings  on  one  railroad 
alone  in  this  country  w^ould 

98 


cost  about  $600,000,000,  and 
to  remove  grade  crossings  on 
all  railroads  in  the  United 
States  would  cost  about 
$5,000,000,000,  a  sum  equal 
to  more  than  one-third  of  the 
entire  market  value  of  all  rail- 
roads in  the  United  States  to- 
day. Yet  the  removal  of  a 
grade  crossing  is  a  permanent 
improvement  resulting  in  in- 
creased safety  to  the  public 
and  decreased  operating  ex- 
penses to  the  railroad,  and 
legislation  demanding  such 
improvements  is  wise,  pro- 
vided the  cost  is  properly  dis- 
tributed among  all  those  bene- 
fited therefrom.  The  build- 
ing of  double  track  and 
stronger  bridges,  the  purchase 

99 


and  use  of  steel  cars,  the  instal- 
lation of  block  signals,  and  all 
legislation  developing  greater 
publicity  of  railroad  affairs  and 
more  courtesy  on  the  part  of 
railroad  employees  may  be 
classed  as  wise  legislation, 
provided  arrangements  are 
made  for  properly  distributing 
the  expense. 

There  is  of  course,  another 
group  of  legislative  acts 
known  as  questionable  legis- 
lation, which  may  or  may  not 
be  in  accordance  with  eco- 
nomic law.  The  so-called 
extra  cre^v  law  which  seeks 
to  make  the  number  of  cars 
the  sole  determinant  of  the 
number  of  the  crew  which  the 
train  shall  have  is  an  illustra- 


100 


tion  of  such  legislation.  Cer- 
tain railroads  have  doubtless 
run  trains  without  a  sufficient 
crew;  but  to  make  a  hard  and 
fast  rule  to  be  applied  irre- 
spective of  all  other  operating 
conditions  is  unjust  to  the 
railroads  and  unwise  for  the 
public.  The  dollar  simply  has 
one  hundred  cents,  and  every 
one  of  these  cents  which  a 
railroad  wastes  upon  an  extra 
crew,  leaves  one  cent  less  to 
be  spent  on  double  tracking, 
steel  cars,  block  signals,  and 
similar  much-needed  im- 
provements. The  law  passed 
by  Congress  a  few^  years  ago 
restricting  the  working  hours 
of  railroad  telegraphers  may 
likewise   be   classed  as  ques- 

101 


tionable  legislation.  An  offi- 
cial of  the  Pennsylvania  Rail- 
road Company  states  in  this 
connection:  "The  application 
of  this  law  has  had  a  curious 
effect.  Instead  of  reducing 
accidents  or  contributing  to 
that  result,  instead  of  making 
men  more  likely  to  take 
adequate  rest,  the  actual  ex- 
perience has  been  that  we 
have  found  more  men  asleep 
on  duty  since  that  law^  has 
been  in  effect  than  we  did 
before." 

Legislation  providing  for 
compulsory  arbitration  boards 
is  seldom  founded  on  merit, 
as  the  work  of  such  boards 
almost  invariably  results  in 
a  mechanical  compromise. 

102 


Wages  should  either  be  left 
to  supply  and  demand  or  else 
to  a  court  of  justice  whose 
decisions  are  based  on  actual 
conditions  and  not  on  com- 
promise. Even  legislation 
providing  for  the  regulation 
of  new  security  issues  by  the 
Interstate  Commerce  Com- 
mission may  be  classed  as 
questionable.  When  the  gov 
ernment  is  prepared  to  under- 
write the  sale  of  securities 
which  it  authorizes,  then  such 
authorization  will  mean  some- 
thing, but  otherwise  such  leg- 
islation can  do  little  good  and 
may  do  much  harm.  Instead 
of  endeavoring  to  determine 
how  money  is  to  be  raised, 
which  should  be  determined 

103 


by  demand  and  supply,  the 
federal  authorities  ought  for  a 
while  to  rest  content  with 
seeing  that  the  money  raised 
is  properly  expended.  Cer- 
tainly there  is  no  reason  why 
the  government  should  favor 
the  purchasers  of  securities 
rather  than  the  purchasers  of 
a  thousand  other  commodi- 
ties. The  purpose  of  the 
government  toward  investors 
should  be  to  see  that  the 
game  is  played  fairly,  so  that 
the  people  shall  have  free  ac- 
cess to  all  facts  connected 
\vith  the  issuance  and  sale  of 
the  securities,  together  with 
the  way  in  which  the  proceeds 
are  spent.  The  writer,  how- 
ever, believes  that  when  people 

104 


are  given  every  opportunity 
properly  to  select  an  invest- 
ment, they  should  both  be 
protected  in  their  profits  and 
compelled  to  take  their  losses. 
Every  attempt  on  the  part  of 
legislators  to  set  aside  the  law 
of  reward  and  punishment 
results  in  disaster. 

The  Real  Question 

This  little  book  does  not 
permit  treating  of  these  sub- 
jects in  detail.  The  writer 
must  be  content  to  emphasize 
a  few  fundamental  principles. 
In  the  first  section,  under  the 
discussion  of  government 
ownership,  the  point  was 
made  that  such  a  step  should 
be  postponed  as  long  as  pos- 

105 


sible;  but  if  it  were  desired  to 
experiment  along  these  lines, 
a  start  could  be  made  by  the 
government  building  all  new 
equipment  until  it  ultimately 
owned  and  controlled  all  the 
railroad  equipment  in  the 
country.  In  the  second  sec- 
tion, when  discussing  the  rela- 
tion between  stockholders 
and  employees,  the  point  was 
made  that  the  best  thing 
stockholders  can  do  is  to  ac- 
quire a  preferred  position  as 
to  holdings  with  a  fair  but 
fixed  rate  of  dividend,  and  to 
aid  employees  to  acquire  the 
control  and  equity,  since  ab- 
sentee-ow^nership  is  unfortu- 
nate for  all  interests. 
In  this  chapter,  which  treats 

J06 


of  service  versus  rates,  this  is 
the  point  which  the  writer  de- 
sires to  drive  home,  namely,— 
instead  of  the  federal  government 
arbitrarily  determining  rates,  and 
then  getting  what  it  can  for  the 
people  in  the  way  of  service,  it 
first  should  demand  better  service 
and  improved  conditions,  allowing 
the  railroads  such  a  rate  as  will 
properly  distribute  the  expenses 
among  all  persons  benefiting  there- 
from. Of  course  this  means 
that  the  rights  of  separate 
states  should  gradually  be 
eliminated,  since  the  first 
requisite  is  that  all  sections  of 
the  country  should  be  treated 
equitably  and  that  no  special 
section  or  industry  should  be 
shown  partiality.    Legislation 

107 


preventing  rebating  was  dis- 
tinctly economic  and  a  step  in 
the  right  direction.  Other  leg- 
islation now  under  considera- 
tion along  similar  lines  should 
also  receive  the  hearty  support 
of  all. 

When  occasions  exist  for 
the  Interstate  Commerce 
Commission  to  determine  a 
rate,  irrespective  of  impending 
or  proposed  improvements, 
what  rule  then  is  it  to  follow? 
The  arbitrary  rules  based  on 
mileage,  cost  of  operating, 
or  even  on  the  valuation  of 
property,  will  be  found  to  be 
unsatisfactory.  The  great 
variation  in  different  sections 
under  which  railroads  are  com- 
pelled to  operate,  as  well  as  a 

108 


score  of  other  reasons,  make 
such  arbitrary  rulings  both 
unjust  and  unwise.  It  seems 
to  the  writer  that  the  Inter- 
state Commerce  Commission, 
when  attempting  to  adjust  a 
rate,  should  endeavor  to  im- 
agine what  rate  would  auto- 
matically exist  under  ideal 
competitive  conditions,  re- 
membering that  ideal  com- 
petition does  not  mean 
destructive  or  monopolistic 
competition.  Experiments 
will  doubtless  be  tried  along 
more  complicated  and  me- 
chanical lines,  but  the  Com- 
mission will  finally  cast  all 
these  formulas  and  theories 
aside.  Rates  can  be  justly  de- 
termined only  by  considering 

109 


what  Avages  employees  would 
be  receiving,  w^hat  dividends 
investors  w^ould  be  obtaining, 
and  what  rates  shippers  w^ould 
be  paying  under  an  ideal  com- 
petitive system  where  the 
rewards  of  all  were  great 
enough  to  permit  of  growth 
and  yet  small  enough  to  pre- 
vent needless  duplication. 

The  greatest  opportunity, 
hoAvever,  which  the  Interstate 
Commerce  Commission  has  in 
rate-making  is  in  the  use  of  its 
power  in  directing  the  manu- 
facture and  distribution  of 
goods  along  economic  lines. 
The  body  which  determines 
passenger  and  freight  rates  has 
the  greatest  power  to  distrib- 
ute properly  the  inhabitants  of 

110 


a  nation.  If  the  cities  are  be- 
coming over-cro\vded,  and  it 
is  desired  to  build  up  the  coun- 
try districts,  the  power  to  do 
so  lies  with  the  railroad  rate- 
making  authorities  of  the 
nation.  If  goods  are  being  un- 
economically  manufactured 
under  artificial  conditions  in  a 
certain  section  of  the  country, 
the  power  to  change  this  rests 
with  the  rate-making  body. 

If  such  an  opportunity  is 
ever  accepted,  I  am  certain 
that  there  will  be  a  tendency 
to  raise  rates  between  large 
centers,  and  to  favor  the  rural 
districts  and  smaller  manufac- 
turing cities.  This  will  per- 
form the  double  function  of 
reducing    the    present    rapid 

111 


growth  of  terminal  expenses 
and  of  distributing  industries 
over  the  entire  country,  thus 
relieving  congested  centers. 
In  fact,  the  Commission  here 
has  a  great  opportunity  to  aid 
in  re-locating  manufacturing 
so  that  it  v^ill  be  done  in  the 
section  where  nature  meant  it 
should  be  done,  rather  than 
where  railroad  officials  have 
designated  it  should  be  done. 
Of  course  the  most  vital 
question  now  before  the  Com- 
mission is  that  of  helping  to 
finance  the  railroads  and  to 
raise  new  money  for  exten- 
sions, improvements,  etc.  In 
connection  with  this,  a  crisis 
must  be  reached  before  long, 
as  many  of  the  proposed  ex- 

n2 


tensions  are  absolutely  neces- 
sary and  capital  will  not, 
under  present  conditions,  take 
chances  for  a  hope  of  only 
6  per  cent  interest.  If  capital 
has  an  opportunity  of  either 
making  20  per  cent  or  losing 
all,  it  will  take  the  chance  of 
building  new  lines  and  fur- 
nishing additional  money,  but 
if  the  choice  lies  between 
making  6  per  cent  or  losing 
all,  capital  will  refuse  the  ven- 
ture. As  the  public  will  soon 
insist  on  the  new  lines,  greater 
terminals,  steel  equipment,  and 
many  other  improvements, 
this  means  that  either  there 
must  some  day  be  a  reaction 
from  the  present  stringent 
laws,  and  the  railroads  will  be 

U3 


given  more  latitude,  or  else 
the  states  must  some  day 
guarantee  certain  securities 
and  purchase  stock  when  the 
stockholders  will  not  take  it 
at  par. 

Things  to  Consider 

The  railroads  today  are  un- 
prepared to  carry  any  consid- 
able  increase  in  tonnage.  The 
net  car  surplus  (aggregate  sur- 
plus minus  aggregate  short- 
age) when  business  is  dullest 
is  only  about  6  per  cent  of  the 
cars  o\vned.  Hence,  a  small 
increase  in  tonnage  will 
quickly  convert  this  net  sur- 
plus into  a  net  shortage.  If 
the  government  does  not  al- 
low the  railroads  to  earn  more 

114 


money,  or  does  not  itself 
finance  the  purchase  of  new 
equipment,  shippers  will  soon 
find  themselves  seriously 
handicapped  by  equipment 
shortage.  Thus  the  future  of 
the  railroads  and  the  future  of 
the  manufacturers,  merchants 
and  workmen  of  a  nation  are 
intimately  bound  together. 
Without  sufficient  equipment 
properly  distributed,  the  ac- 
tivities of  all  are  handicapped. 
Hence,  the  writer  earnestly 
urges  his  readers  to  give  more 
thought  to  procuring  addi- 
tional equipment,  double 
track,  block  signals,  the  elim- 
ination of  grade  crossings, 
and  the  proper  expenditure 
of  money,  and  less  to  a  dis- 

115 


cussion  of    the  abstract  sub- 
ject of  rates. 

People  must  be  taught  the 
importance  of  the  vote,  both 
the  political  vote  and  the  cor- 
poration vote.  It  is  bad 
enough  to  neglect  going  to 
the  polls  on  election  day;  but 
is  it  not  worse  to  throw  into 
the  waste-basket  proxies  upon 
the  proper  use  of  which  the 
destinies  of  thousands  of  em- 
ployees and  scores  of  com- 
munities depend  I  Of  course,  I 
recognize  the  difficulty  under 
the  present  system  of  absen- 
tee ownership  of  voting  with 
any  intelligence.  Rather  than 
vote  for  men  about  whom  he 
knows  nothing,  one  naturally 
throAvs  proxies  into  the  waste- 

116 


basket;  but  under  such  condi- 
tions, should  such  a  person  be 
entitled  to  vote?  Should  not 
an  absentee  stockholder  be 
content  to  hold  bonds  or  non- 
voting preferred  stock  and 
let  the  equity  and  control  be 
held  by  those  actually  em- 
ployed in  the  business?  This, 
of  course,  does  not  mean  that 
one  should  take  collateral 
trust  bonds  and  let  the  con- 
trol rest  with  gamblers,  as  did 
the  old  stockholders  of  the 
Chicago,  Rock  Island  and 
Pacific  Railway  Company.  It, 
however,  does  mean  that  if 
one  cannot  personally  and  in- 
telligently exercise  his  right 
to  vote,  it  should  be  exercised 
by  somebody  who  can.    Here 

^  117 


again,  this  readjustment  of 
the  equity  and  control  of  our 
great  industries  can  be  brought 
about  only  through  economic 
education.  When  corpora- 
tions were  originally  started, 
it  never  occurred  to  the 
founders  that  the  stock  would 
be  purchased  by  persons  who 
were  not  directly  connected 
with  the  industry.  Condi- 
tions have  changed  entirely 
from  what  was  at  first  ex- 
pected. Hence,  present  con- 
ditions can  likewise  be  reme- 
died only  by  a  change,  and 
the  writer  appeals  to  rail- 
road stockholders  either  to 
assume  personally  the  respon- 
sibility of  management  or  else 
allow  it  to  be   acquired   by 

118 


employees  who  will   be   re- 
sponsible therefor. 

When  discussing  what  is  a 
reasonable  return  for  money 
invested,  the  following  defi- 
nition was  given  by  the  late 
Railroad  Securities  Commis- 
sion: "One  which,  under  hon- 
est accounting  and  responsible 
management,  will  attract  the 
amounts  of  investments 
needed  for  our  railroad  facili- 
ties." Much  has  been  said 
here  about  service  and  rates, 
but  little  about  the  necessity 
of  paying  the  market  wage  for 
capital.  The  price  of  capital  is 
subject  to  the  same  laws  of  supply 
and  demand  as  the  price  of  labor 
and  the  price  of  any  commodity. 
Capital  enters  that  line  of  busi- 

119 


ness  and  goes  to  that  section 
of  the  world  where,  everything 
else  being  equal,  it  obtains  the 
greatest  rate  of  interest. 
Hence,  the  future  of  the  rail- 
roads depends  upon  their 
being  able  to  attract  new  cap- 
ital as  well  as  to  get  employees 
or  patrons.  The  public  de- 
mands compulsory  arbitration 
in  order  to  provide  the  rail- 
roads with  employees,  but  it 
does  not  think  of  compelling 
the  railroads  to  pay  additional 
dividends  in  order  to  provide 
itself  with  capital  for  much- 
needed  improvements.  The 
latter  procedure,  nevertheless, 
would  be  fully  as  logical  as 
the  former. 

Of  course,  if   only  the  re- 
corded stockholders  were  the 

120 


real  owners  of  the  railroads  it 
might  be  possible,  even  though 
unjust,  to  sand-bag  these 
stockholders  into  providing 
additional  capital.  The  facts 
are,  however,  that  the  owner- 
ship of  the  railroads  is  much 
more  deeply  rooted  than  ap- 
pears on  the  surface.  One  life 
insurance  company  with 
$200,000,000  of  assets  has 
more  than  $120,000,000  in 
railroad  stocks  and  bonds. 
The  life  insurance  companies 
doing  business  in  NeAv  York 
State  report  about  $4,000,- 
000,000  of  assets,  of  which 
nearly  one-half  are  in  stocks 
and  bonds  owned.  Most  of 
this  consists  of  railroad  securi- 
ties, and  this  proportion  prob- 

121 


ably  applies  on  the  average 
to  all  the  life  insurance  com- 
panies in  the  United  States. 
But  for  whom  are  these  invest- 
ments held  in  trust?  They 
are  not  held  in  trust  for  any 
few  rich  individuals  but  for 
millions  of  people  who  hold 
life  insurance  policies,  of 
which  there  are  said  to  be 
about  33,000,000  outstanding, 
under  which  there  must  be  at 
least  50,000,000  beneficiaries. 
This  means  that  the  future  of 
one-half  of  the  inhabitants  of 
the  United  States  is  indirectly 
dependent,  through  these  life 
insurance  companies,  upon  the 
value  of  the  outstanding  secu- 
rities of  the  railroads  of  the 
United  States. 

122 


This  is  not  all.  From  the 
statistics  in  the  possession  of 
the  Babson  Organization  it 
appears  that  the  entire  bond 
issues  of  the  steam  railroads 
of  this  country  amount  to 
about  $9,250,000,000,  of 
which  the  life  insurance  com- 
panies of  New  York  State 
alone  hold  about  $1,250,000,- 
000.  Considering  the  entire 
country,  this  probably  means 
that  the  life  insurance  com- 
panies as  a  whole  hold  from 
one-sixth  to  one-eighth  of  all 
the  bond  issues  outstanding  of 
American  railroads.  When  to 
these  investments  of  the  life 
insurance  companies  are  added 
the  railroad  securities  held 
by   savings   banks,   together 

123 


with  various  educational,  re- 
ligious, and  benevolent  insti- 
tutions, the  result  is  still 
more  astounding.  Hence,  the 
writer  appeals  to  the  man  in 
the  street  who  thinks  he  is  not 
an  owner  of  a  share  of  rail- 
road stock,  to  recognize  these 
facts.  Although  he  is  not  a 
recorded  stockholder,  yet  the 
value  of  his  savings  bank  ac- 
count and  his  life  insurance 
policy  depends  directly  upon 
what  treatment  is  being  given 
to  the  security  holders  of 
American  railroads.  Of  every 
dollar  which  a  workman  pays 
on  the  premium  of  his  life 
insurance  policy,  about  30  per 
cent  is  invested  in  railroad 
securities,  and  any  legislation 

124 


adversely  affecting  the  value 
of  such  securities  adversely 
affects  the  value  of  such  poli- 
cies. 

In  view  of  the  above,  two 
facts  are  self-evident: 

(1)  The  future  of  the  rail- 
roads depends  not  simply  on 
their  relation  to  the  govern- 
ment, to  the  employees,  to  the 
investors,  or  any  other  one 
factor,  but  their  future  depends 
on  many  factors  and  on  har- 
monizing all  factors.  The 
conflict  is  not  simply  between 
certain  classes  such  as  the 
stockholders  and  the  em- 
ployees, or  the  government 
and  the  shippers,  or  the  invest- 
ors and  the  politicians;  but  all 
are  intimately  and  almost 
equally  involved. 

125 


\ 


(2)  The  future  of  every  sec- 
tion of  the  country,  every  line 
of  industry,  and  almost  every 
individual  is  likewise  depend- 
ent upon  the  future  of  the 
railroads.  The  brick-layer  is 
temporarily  laid  off.  Why? 
Because  a  car-load  of  bricks 
has  not  arrived.  Why?  Be- 
cause the  manufacturer  has 
been  unable  to  obtain  equip- 
ment. Why?  Because  the 
railroad  has  been  unable  to 
obtain  the  funds  for  purchas- 
ing new  equipment.  Why? 
Because  the  savings  banks  are 
fearful  about  buying  any  more 
securities,  or  perhaps  because 
the  above-mentioned  brick- 
layer and  his  associates,  on 
account  of  being  out  of  work, 

126 


have  not  made  their  custom- 
ary deposits.    Thus  the  wheel 

revolves. 

*        *       *       * 

Doubtless  some  of  the  sug- 
gestions in  this  book  seem  im- 
practical, if  not  absurd,  to 
many  readers;  and  some  of 
them  are  now  perhaps  un- 
reasonable. It  should,  there- 
fore, be  remembered  that  these 
thoughts  are  given,  not  as 
recommendations,  but  simply 
as  suggestions  as  to  what  the 
future  of  the  railroads  may 
bring  forth.  Moreover,  they 
are  published  in  this  way  in 
order  to  make  you— the  reader 
—think. 

Of  one  feature,  however,  the 
w^riter  is  certain,  viz.,  that  the 

127 


best  interests  of  all  parties- 
government  officials,  employ- 
ees, stockholders  and  shippers 
—are  ultimately  dependent 
upon  mutual  co-operation.  In 
accordance  with  Newton's 
law,  an  injustice  to  anyone 
will  react  to  the  disadvantage 
of  all:  while  the  prosperity  of 
anyone  will  react  to  the  ad- 
vantage of  all.  This  means 
that  the  future  of  the  railroads 
depends  upon  the  develop- 
ment of  all  interests  in  charac- 
ter and  intelligence. 


Finis 


128 


FUNDAMENTAL  STATISTICS 

KNOWN    AS 

BABSON'S  REPORTS 

Relative  to  the  Underlying  Monetary, 
Mercantile  and  Investment  Conditions 

We  are  able  to  supply  and  distribute  statistics  on  the  subjects  upon 
which  the  Babson  Composite  Plots  are  based.  These  we  supply  to 
Stock  Exchange  Firms,  Bond  Houses,  Mercantile  Houses,  Manufac- 
turers and  Investors. 

By  a  study  of  these  data  each  week,  one  can  readily  ascertain  for 
himself  whether  we  are  in  a  period  of  prosperity,  a  period  of  depression, 
or  are  passing  from  one  to  the  other;  and  what  should  be  the  next 
major  change  in  trade,  money  rates,  commodity  and  investment 
prices. 

The  cost  of  this  information  is  very  small  in  comparison  with  what 
it  is  costing  firms  to  collect  such  data  independently,  and  these  figures 
are  absolutely  accurate  and  more  up-to-date  than  if  collected  by 
subscribers  independently.  Following  are  the  several  services  issued 
by  the  Babson  Statistical  Organization. 

MEftCANTILE— 

A  service  for  the  manufacturer  and  merchant,  showing  favorable 
and  unfavorable  business  conditions  throughout  the  country,  where 
to  push  sales,  advertising,  etc.,  together  with  an  accurate,  up-to-date 
report  of  specific  industries  and  their  probable  trend. 

INVESTMENT— 

Designed  for  the  conservative,  intelligent  investor  desiring  to 
obtain  the  maximum  of  profit  with  all  losses  eliminated,  through  a 
use  of  the  "long  swings." 

COMMODITY— 

Distinctly  different  from  the  "Mercantile,"  as  it  takes  up  specific 
commodities  rather  than  industries,  showing  whether  to  buy  or  hold 
off,  whether  to  stock  up  or  liquidate. 

BANKING— 

A  condensed  service  for  bankers,  treating  of  present  bond  purchases, 
commercial  paper,  money  rates,  etc.,  aiming  to  give  all  information  in 
concise  form. 

LABOR  AND  SOCIAL— 

A  practical  service,  showing  the  trend  of  the  strike  and  labor  situa- 
tion and  discussing  Labor,  Social  and  Religious  problems  from  all 
sides  with  a  view  to  helping  if  possible  to  solve  these  questions  for 
Employers,  Employees  and  Social  Workers. 

GENERAL  SERVICE— 

A  service  providing  important  world  wide  business,  real  estate 
and  investment  information  not  otherwise  discussed  in  the  preceding 
services.  Advance  information  on  profitable  opportunities  through- 
out the  world. 

Further  particulars  relatl?e  to  the  atwve  will  be  sent  gratis 
on  application.    Address  the 

BABSON   STATISTICAL   ORGANIZATION 
Wellesley  Hills,  Mass.,  U.  S.  A. 


Books  by  Roger  W.  Babson 
*    *    * 

rsrsESS  b.krometers 


COMMBaCIAL    P.\PER 


BONDS    AND    STCXIKS 


T^  gCTPKE  MBTBOP  Of  TS\TSTTSG 
MCSEY 


SIjM 


THE    FXTI-'RZ    OF    THE    WORKING   CI_\S5ES 


,hdiz  T—ti — ^?^ir4  i_  J. 


FL~rL"RE    OF    THE    NATIONS 


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THE    FL"TI"RE    OF    THE 


THE    FITL'RE    OF 


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B.\B>ON~S    STAT15TIC.VL    QRG.\-VlZ-\TION 
WeJiesiey  Hills.  Mms^.  U.  S-  A. 


MOODY  MANUAL  SERVICE 

ON  RAILROAD  AND  CORPORATION  SECURITIES 

This  is  believed  to  be  the  most  comprehensive  and  reliable  year  book 
on  American  Railroad,  Industrial,  Public  Utility  and  other  Corpora- 
tions. It  contains  the  history,  earnings  and  full  particulars  regarding 
their  various  stocks  and  bonds. 

The  two  volumes  complete  with  Monthly  Supplement. 

Moody  Manual  Co..  33  Broadway,  New  York  City,  U.  S.  A. 


CORPORATION  AND  MUNICIPAL  BOND 
AND  STOCK  OFFERINGS 

A  confidential  service  for  dealers  only,  which  shows  the  market  on 
all  unlisted  securities,  where  they  may  be  bought  or  sold.  Cumulatively 
and  self-indexed,  covering  about  15,000  issues  and  always  up  to  date. 

The  National  Quotation  Bureau, 
66  Liberty  Street,  New  York  City,  U.  S.  A. 


INSTRUCTION  COURSES 

For  investors,  employees  of  bond  houses,  stock  exchange  firms  and 
banks. 

These  courses  were  prepared  by  able  specialists  on  railroad,  public 
utility,  and  other  corporations,  and  are  now  being  studied  by  the 
keenest  students  of  England  and  America. 

Full  details  will  be  sent  on  request. 

Investment  Bankers  Bureau,  Wellesley  Hills,  Mass.,  U.  S.  A. 


« 


OFFICIAL"  CARD  SYSTEM 


Statistics  relative  to  railroad,  industrial  and  copper  stocks  and  bonds 
are  collected,  analyzed,  indexed  and  forwarded  to  subscribers  in  all 
parts  of  the  world;  printed  on  standard-sized  (Sin.  x  Sin.)  cards,  thus 
allowing  for  the  daily  revision  of  any  individual  security  without 
interfering  with  the  alphabetical  arrangement. 

Sample  cards  and  complete  details  on  request. 

Standard   StatisUcc  Co.,  47  West  St.,  New  York  City,  U.  S.  A. 


MOODY  MANUAl 


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